It doesn't take the biggest brain on the planet to divine that casinos and savings banks are very different beasts. That is why there is a growing clamour from luminaries including Bank of England governor Mervyn King and former chancellor Nigel Lawson to look at introducing Glass-Steagall style rules. Glass-Steagall was the 1930s regulation in the US that separated banks' function as utilities from their gambling activities; it came out of the belief that banks' speculation on the stock markets with their savers' money helped cause the crash of 1929 and the Great Depression.

Its repeal in 1999 by the Clinton administration was driven by powerful banking interests, a textbook case of politicians bowing to the finance industry, which had conducted a $300m lobbying assault. It worked to the immediate benefit of ambitious bank bosses in general, and Sandy Weill in particular. Weill, the former head of Citigroup, in 1998 had announced a $70bn deal with insurance company Travelers, to create a huge, multi-purpose financial institution of precisely the sort Glass-Steagall sought to prevent. Robert Rubin, Clinton's treasury secretary, accepted a job as Weill's lieutenant soon after.

We never had Glass-Steagall, but until the Big Bang in 1986 our staid old banks and building societies operated in a distinct sphere from the gentlemanly merchant bankers of the Square Mile. Since liberalisation, however, the high-street counters of Barclays, NatWest and the Midland (now HSBC) have been reduced to unexciting outposts of their parent companies' global empires.

Adair Turner, chairman of the Financial Services Authority and a former Merrill Lynch man, is cooler than King on the Glass-Steagall idea because of the practical difficulties of severing casino banking so totally from its distant high-street cousin. Northern Rock, he points out, was a narrow utility bank, while Bear Stearns and Lehman were pure casino banks but still systemically important.

True, but that does not demolish the case for cordoning off the casinos; it needs to happen along with other reforms. The repeal of Glass-Steagall may not be the prime cause of the crunch, but there is correlation. Weill's triumph added to the bankers' sense of their own rightness and invincibility; it showed that fraternisation between financiers and policymakers was now the norm. One powerful reason for bringing back some variant of the act is that without it, the casino culture infects the utility banks and the wider society.

At the root of the crunch was a toxic cocktail: the mis-selling of sub-prime mortgages on Main Street and the packaging of them into securitisations on Wall Street. Bear and Lehman were not utility banks, but arguably, they would not have run into such trouble without the fall in consumer lending standards that accompanied repeal.

Professor Richard Portes at the London Business School argues that the banks need to be broken up because they are too big both from the point of view of consumer competition and in terms of their lobbying power: I agree. Mega-banks have exerted a pernicious influence. They became not just too big to fail, but too big for the system to handle. Bank balance sheets cannot, in a sane world, be bigger than that of the government of their main host country.

Other measures are needed: utility banks, which would have taxpayer protection for deposits, should be subjected to curbs on their wholesale funding and securitisations. The idea of caps on "extreme mortgages" of six times salary or more than 100 per cent of a property value was kicked into the long grass by Adair Turner in his report on financial regulation last week, but it is a sensible one. We also need to bring in counter-cyclical capital requirements, so that banks build up their reserves when times are good. Note to G Brown and A Darling: it might have been an idea for you to have done that, too.

Bringing in a modern version of Glass-Steagall will not be easy. As Turner points out, it would be tough for one country to introduce on its own, which is why it should be on the agenda at the G20. It will definitely be deeply unpopular with bankers. But to allow, as we have done, a situation where the casinos can make the sky fall in on our banking halls is madness.

The irony is, they still believe they're masters of the universe

At least City grandee Sir George Cox has the guts to say what he thinks; but to the rest of us, it sounds as though he nodded off and woke up thinking it is still 2005. Most people will be incredulous that Sir George believes the board of nationalised bank Bradford & Bingley - which he graced as a senior non-executive - was "excellent" and that Adam Applegarth at Northern Rock was a decent enough bloke. Plenty of financiers share Sir George's views in private; the only unusual thing about him is that he is prepared to state them so directly.

Instead they sneer at their critics, implying that anyone who dares to blame a banker for the crunch is a blunt intellect who cannot grasp the complexities of the causes - in much the same way as they derided the dimness of those who questioned the sustainability of the boom. Ideas they find threatening are dismissed as "populist", "knee-jerk", "crude moralism" or "saloon-bar solutions". The crunch was not caused by greedy bankers - oh no, the real culprits are abstractions, like global macro-economic imbalances.

The implication is that if you disagree, you must be thick. Despite everything, these failed financiers still think they are superior.

Equitable won't go away. Happily, nor will Ann Abraham

Sometimes I wonder whether I will still be writing about Equitable Life when I reach pension age myself. It is the scandal that refuses to go away, because the government's cynical attempts at delaying and wriggling out of compensation mean a line cannot be drawn under the affair.

But policyholders have found a formidable ally in Ann Abraham, the parliamentary ombudsman. She is now saying in a letter to MPs, which I have seen, that she intends to take the highly unusual step of presenting a special second report into the scandal to both houses of parliament.

Her first report - its title, "A decade of regulatory failure", is as clear as it is damning - said the government should set up a scheme to compensate victims, but ministers ignored her recommendation and instead appointed retired judge Sir John Chadwick to work out which policyholders had suffered most and how much could be attributed to official maladministration.

Her move follows a crushing verdict on the government's conduct last week from the public administration select committee, which found its handling of her initial report to be "shabby, constitutionally dubious and procedurally improper".

A second ombudsman's report is only issued when she concludes that the injustices laid bare in her initial findings will not be put right. Patently, this is the case here. In her letter, she says it is clear to her that "whatever the outcome of the work done by Sir John Chadwick, a full remedy will not be forthcoming". The Equitable Members Action Group is also refusing to give in; this weekend it took the first step in applying for a judicial review of the government's failure fully to implement the ombudsman's recommendations.

Brown has always been hostile to the Equitable victims and is now hoping their plight will be brushed aside in the crunch. Some feel the issue is a sideshow. But the government's failure to face up to the consequences of faulty regulation does not bode well for its handling of the banking crisis.